Interest Income Will Drop Sharply
March 17, 2020
The Federal Reserve Board’s move to drop interest rates to zero is having a complex effect on New England banks. Interest income is going to suffer tremendously.
The Boston Business Journal reports “All of a sudden, the outlook for local banks is very different than it was just a month ago, executives said. The Fed’s dramatic moves make it significantly harder for them to make money off interest this year. At the same time, loans they’ve made to restaurants, hospitality firms and other businesses under serious threat from the coronavirus are now in jeopardy,” the article said.
“Revenues are under tremendous pressure and will continue to be in this environment,” Eastern Bank CEO Bob Rivers said in an interview with the Business Journal. “There will be higher loan losses.”
On Friday, Century Bank heard from clients in hospitality- and events-related businesses that needed what CEO Barry Sloane called “extraordinary increases in their lines of credit” — as high as 30 percent — to survive, he said. So far, the bank has granted each request, but it treats them on a case-by-case basis, according to Sloane.
“It’s going to be huge. It already is huge. It’s been going crazy since the Fed did the first cut,” said Jay Tuli of Leader Bank, a major mortgage lender. “It’s going to be an enormous refinancing year.”
Read more about the impact on New England banks.